China Faces Pension Crisis

Study predicts a USD 2.8 trillion pension shortage in China next year.

By the year 2013, China will face a pension gap of RMB 18.3 trillion (about USD 2.8 trillion), says  Ma Jun, chief economist and investment strategist of Deutsche Bank Greater China, and Cao Zhengyuan, chief economist of Bank of China,  in a recent report titled Resolving mid- and Long-Term Risks of National Debt.

China has an aging population of 100 million

In the past decade, China has allocated more than RMB 1 trillion (USD 157 billion) of fiscal subsidies to facilitate retirement payments.  But being the only country in the world that has 134 million people aged above 60, the huge hole of pension insurance is hard to fill.  The situation will be deteriorated by a increasing aging population—one of the legacies of one-child policy, and improved medical care that prolongs lifespan.  It says in the report that by the year of 2050, there will be one retiree in every three Chinese people.  It means each employee has to support 1.5 retirees. By that time, the hole in pension funding will snowball into an amount equivalent to 5.5% of its GDP.

The report warns that only by delaying retirement age and increasing state funding will not solve the problem. “China has a very imbalanced pension system”, said Chen Wenhui, vice chairman of the China Insurance Regulatory Commission at the Lujiazui Forum earlier this year. “An overall reform of the pension system is required”. Currently China’s pension funds are managed at local level by put ting aside workers’ salaries (6% to 11% to monthly salary) and government fund.  It is hard to retain the values of the holding, not to mention generating high yields. What is more, currently in China, only 170 million urban workers are covered by the pension scheme, that is about 15% of the entire population. Extending the coverage is also a key issue.

 A new pension scheme that attempts to boost yields by investing in foreign private-equity funds has been approved by The Ministry of Finance, MLSS, and the People’s Bank of China in May.

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5 replies

  1. very informative and scary at the same time!


  2. Reblogged this on OyiaBrown.



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